Over the past week, the average retail price of gas in Alberta has risen nearly 18 cents a litre.  This has prompted a question from consumers.

What the heck just happened?

Dan McTeague, Senior Petroleum Analyst with GasBuddy says it has everything to do with the market we price into and that's the U.S. Midwest.

"It affects everything we do in terms of the price we pay.   The way the industry works is, whatever happens in the U.S. Midwest affects, on the supply and demand side, the price we pay here in western Canada.  The Chicago spot market that is the benchmark for midwest U.S. prices rose almost 60 cents a gallon from about two weeks ago after a couple of refineries couldn't emerge from their fall time maintenance and we saw the rupture of a gasoline pipeline that helps send a lot of gasoline to the U.S. Midwest.

Right now the supply crunch means that it extends into Canada and we saw that price increase of 60 cents a gallon translate into about a 15 cents a litre wholesale price increase at a lot of gas stations."

McTeague says that was the bad news.  He has hope for over-stressed Cochrane drivers.

"We've paid those prices in the $1.24 to $1.27 range but they're starting to wind down.  Slowly but surely the wholesale price of gasoline is starting to move in a very different direction Three cents on the weekend, another penny likely today.  We could see prices moving down anywhere from three to eight cents a litre likely into the weekend next week."

One question which might arise from this scenario is, if prices rose by 18 cents a litre, why are they only going to fall by three to eight cents a litre.  McTeague explains.

"U.S. demand continues to outstrip supply.  That's a major factor.  U.S. prices have been relatively stable and very affordable.  We continue to see a picture that won't become absolutely clear until Wednesday morning when the department of energy releases its weekly inventory report.  If it continues to show the U.S. Midwest supply continues to stay below the five-year average, we can expect prices to remain fairly high  We've seen prices on that spot market drop about 18 cents a gallon so I'm suspecting we may see those prices continue to move down but it may not be as quickly as we'd like.

For gas stations that are buying fuel that is far more expensive than what they were selling it for this last week, and many people are slowing down on buying, it means they're going to be left with very expensive inventory that they can't liquidate easily and that tends to be one reason why prices don't come down as quickly." 

McTeague adds, "Having said that, don't blame the messenger.  I'm only telling you how this works."

The price of a litre of gas in Cochrane today ranged from $1.20.9 to $1.24.9.